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Analysis: Very Old Europe

In some respects, Europe has become a victim of its own success. Europeans live longer and healthier than they did before and the state largely guarantees the welfare of those under 25 and over 60. The problem is the system is unsustainable - without workers there is no growth and without growth there will be no more welfare.

Brussels (UPI) Aug 18, 2005
The European Commission, the EU's executive arm that drafts legislation, keeps a beady eye on member states' compliance with Union laws and manages the bloc's $120 billion a year budget, is not given to existential musings.

Yet at a conference on demographic change last month, the EU Commissioner for Employment and Social Affairs, Vladimir Spidla, posed profound questions that sounded more like the script of an Ingmar Bergman movie than a speech by a senior civil servant.

"What priority do we attach to children, and what place do we want to give families, whatever their form? How can we develop new forms of solidarity between generations? How must we respond to the rise in the number of retired people and very old people?"

The commission cannot legislate on the number of babies Europeans have or on the age workers choose to retire, but neither can it ignore Europe's plummeting population and the dramatic consequences this is likely to have on the "old continent" over the next 50 years.

The average number of children Europeans have is 1.5 - well below the 2.1 level needed to replace generations. Indeed, there is not a single EU country that is naturally replacing its population, though France and Ireland come close. In some EU countries, such as Italy, Spain and the Czech Republic, the fertility rate is as low as 1.3.

The result is populations are already plummeting in seven EU countries - all Central and Eastern European states that joined the bloc last year - and by 2050, 20 of the club's 25 members will have falling numbers. Germany, the EU's biggest state, is on course to lose 8 million of its people by mid-century, Italy over 5 million and Poland 4.5 million.

The drop in the number of babies Europeans are having will fundamentally change the demographic make-up of the continent. EU statistics estimate there will be 20 percent fewer children aged 0-14 by 2050 and 25 percent fewer young adults aged 15-39.

On the other hand, increased life expectancy means there will be 44 percent more elderly people and 180 percent more very elderly people by 2050.

If current fertility rates continue, Europe stands to lose 55 million people of working age between now and 2050. This will, in turn, push up the dependency ratio - the ratio of the population aged 0 to 14 to the population aged between 15 and 64 - from 49 percent now to 66 percent in 2030. With fewer people working and more on benefits, social security spending is likely to mushroom, blowing a hole in most countries' finances.

The change in the dependency ratio will also have a devastating effect on Europe's already sluggish economy.

"Never in history has there been economic growth without population growth," says a recent commission policy on demographic change, which estimates the EU's drop in numbers could slice 1 percent a year off current growth rates.

In some respects, Europe has become a victim of its own success. Europeans live longer and healthier than they did before and the state largely guarantees the welfare of those under 25 and over 60. The problem is the system is unsustainable - without workers there is no growth and without growth there will be no more welfare.

"People want to live longer, start work later, retire earlier and live better lives," David Blunkett, Britain's pensions and social affairs minister, told a commission conference last month. "This is an equation that does not add up."

There are three obvious ways of defusing Europe's demographic time bomb, but none of them is easy to put into practice. The first is to raise fertility rates. Studies show Europeans would like to have more children - 2.3 is judged the ideal number - but are discouraged from doing so because of job instability, expensive housing and lack of incentives.

In EU countries where proactive policies - such as providing childcare, increasing family benefit and granting parental leave - have been pursued, the fertility rate has risen. However, these measures have hefty price tags attached.

The second obvious way is to increase immigration from non-EU countries. This could help plug gaps in Europe's labor market, but unless governments are willing to take the unlikely step of letting in more than 50 million migrants by 2050, it will not solve the continent's demographic problem.

The third solution is for European governments to increase the retirement age from 60 to 65 or 67. Several have already done so, but only in the teeth of violent opposition from "baby-boomers" who are reluctant to give up the rewards they feel they have earned.

Asked how governments could persuade voters to swallow the bitter medicine required to reverse Europe's population slump, Spidla told United Press International politicians needed to demonstrate "realism, imagination and political courage."

The problem is among the current crop of European leaders, these three qualities are in very short supply.

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Analysis: Which Economic Model For EU?
Brussels (UPI) Aug 11, 2005
Reading some commentators, one could be forgiven for thinking the EU was witnessing a battle to the death between supporters of an old-style Europe of high taxes, state-supported enterprises and generous welfare hand-outs and a free-market Anglo-Saxon model based on free trade, deregulation and self-reliance.







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